The wide distribution of credit services by Russian banks and the availability of loan processing require credit institutions to take measures that increase the security of the transaction with the borrower and reduce the risk of default. Insurance is perceived by banks as an essential condition when opening a credit line. Nevertheless, borrowers can refuse insurance after receiving a loan, having legal circumstances.
Link to legislation
The problem, when the bank imposes insurance options, is familiar to almost every client who has ever applied to the bank for a loan. Especially if the loan amount is significant. Civil law and federal regulations protect citizens facing the need for insurance based on the following provisions:
- Article 935 of the Civil Code prohibits the imposition of insurance services in the design of basic banking services, ie, lending;
- Art. 958 of the Civil Code gives the right to refund part of the cost in case of a partially unused insurance period upon early repayment.
As part of the implementation of consumer rights, the borrower has the opportunity to require the provision of the service without imposing additional paid options. There is a standard 14-day period during which the borrower can refuse insurance for non-targeted lending. If a target loan is issued, for example, a car loan, the time period for refusal of the additional option is 30 days.
There is a significant limitation for the exercise of this right – to close a credit line during this period, taking into account the amount of interest accrued. Thus, the practical implementation of the provisions of the law at the moment was expressed in the fact that it terminates credit obligations, and hence the need for insurance is no longer necessary.
After the collective appeal of citizens from November 2015, the Central Bank approved Directive No. 3854-U, which establishes the procedure and determines the minimum requirements for voluntary insurance, which was imposed by the bank.
The main essence of the instructions of the Central Bank lies in the possibility of waiver of insurance after processing the loan within 5 days, after which the issue will be resolved using the provisions of the law on consumer rights or the internal regulations of the bank. Thus, the client receives a loan at a lower percentage, and then makes a claim for a refund on the insurance during the so-called cooling period.
The insistence of financial institutions on providing additional security in the form of insurance can be understood: it is important for the bank to maintain confidence that the funds lent to the citizen will return with interest during the scheduled period.
This allows the bank to reduce the loan rate, hoping to receive compensation in case of insured events (loss of work, income, disability, as well as loss of the collateral or a decrease in its value).
Thus, the provision of the service lies in the direct interests of the lender, however, insurance can also be beneficial for the client when obtaining a loan if the policy includes protection for the demanded types of insurance claims. As a rule, the most profitable insurance is in case of loss of work or disability. Among the insurance risks most interesting to customers are responsibility for credit obligations due to disability, loss of income, deterioration of financial position, etc. If the insurance policy did provide full protection against the impossibility of servicing the debt by the borrower, it is unlikely massive complaints, claiming no need for insurance. And yet, before you give up the policy, you must carefully weigh the decision – perhaps the insurance coverage in a particular situation of the borrower will be superfluous.
What is a “cooling period” and how to use it?
Since March 2016, new rules have been introduced for applying the cooling period, thanks to which many of the customers were able to resolve the issue of overpaid funds on insurance imposed. Currently, any borrower solves the question of the validity of the contract with the insurer, and if this measure is deemed unnecessary, it may require a refund using the simplified procedure for refusing services within 5 days after signing the agreement with the UK. This 5-day period is recognized as a cooling period.
In the event that the contract has not yet entered into force, a full refund is possible, if the contract becomes effective, the company will be obliged to refund the amount after deducting the cost of insurance for the period used.
5 days is such an obligatory period that any Russian company is obliged to provide, however many banks go for more loyal measures, increasing the cooling period. Thus, different internal regulations will apply in Rosbank or Sberbank, due to the fact that the Central Bank does not prohibit setting more flexible conditions for the implementation of the cooling period.
Sberbank’s internal policy provides for the right of the borrower to refuse insurance and refund the amount paid earlier within 2 weeks after payment of the policy. Such a duration is typical of the majority of Russian lenders, however, some organizations went even further, extending it to 1 month.
In addition, the rules of the credit organizations allow you to get a percentage of the paid contributions. The period of the possibility of returning a certain percentage of payments in Sberbank was 90 days, but the limit of the amount is limited to no more than half of the payment.
Before signing a loan and insurance contract that imposes a bank, it is necessary to know in advance the specifics of the return of insurance payments in case of refusal, since banks do not advertise these provisions, pursuing their own benefit. Even if the bank’s policy does not contain provisions regarding the right to refuse insurance, the citizen always has a 5-day period.
There is a significant drawback when using the right to refuse insurance services when lending. After refund of the insurance and cancellation of the contract with the insurer, the bank may unilaterally review the terms of the provision of borrowed funds. Often, the financial structure increases the rate by 1-2%, which entails an increase in overpayment on interest. It is necessary to carefully study the loan agreement, in particular, the items relating to the appointment rate and the use of additional services. If there is a mention of a rate increase in the document, the sum of the total overpayment and the cost of insurance services for the entire remaining crediting period should be calculated.
The parameters of the cooling period set by banks
In order to return the funds that the borrower has paid the insurance company, it is necessary to take some actions.
The basis for the return of insurance will be a written statement, duly executed, with the application of the documents required by the insurer.
In case of refusal of the insurance company, the policyholder has the right to appeal the decision of the IC on the law in a court of law.
If you are going to issue a policy before issuing loan funds, the borrower specifies what the cooling period is at the credit institution in question, and acts according to the rules adopted by the bank.
As a rule, each bank has its own views on the simplified procedure for refusing insurance during the cooling period, but the fixed minimum period is unchanged – from 5 days after the conclusion of the insurance contract.
The parameters determined by the bank include:
- the duration of the cooling period;
- the procedure for requesting payment of insurance back;
- the amount of the refund, the procedure for calculating the funds returned by insurance.
According to the provisions of the Directive of the Central Bank, the following types of voluntary insurance are refundable after the filing of a waiver:
- life insurance subject to a certain period of time;
- protection coverage of the life of the borrower, paying regular premiums or participating in the UK investment activities;
- protection from accident, serious illness;
- medical insurance;
- insurance coverage for various risks for various types of transport;
- real estate insurance;
- liability insurance for owners of waterborne or airborne vehicles;
- liability insurance for harming the health of other individuals;
- financial risk insurance coverage.
Having the right to refuse insurance on a loan does not at all mean the obligation to do so. Each borrower decides for himself whether he will need further insurance coverage or abandon it.
The difficulty of applying the instructions of the Central Bank was the fact that the granting of the right to refuse insurance and forcing a lender to issue a loan to a particular borrower is two different things. Only a financial institution can decide whether to issue funds to a citizen or refuse to extradite.
Thus, in practice, the problem of having unnecessary insurance and the cost of it still persists. The client also risks not getting a loan if he expresses his disagreement with the insurance.
The way out of the situation will be the signing of a loan agreement with further registration of the refusal of insurance, because if the bank lends money to the borrower, then the terms of the loan will be more stringent, the amount is less, the rate is higher.
A simple preliminary calculation of most loan programs shows that the lack of a voluntary policy that a bank requires can lead to an automatic increase in loan interest. Increasing overpayment on debt forces the borrower to consider taking a policy in the UK so as not to increase the cost of servicing the rate.
However, even if the rate rises by a couple of percent, it is unlikely that the cost of insurance will be less than this amount in terms of overpayment for the year. If there is a high probability that the loan will be repaid ahead of schedule, it makes sense to think about refusing additional insurance services.
Description of the procedure
After the instructions of the Bank of Russia came into effect, the borrower’s actions to return the insurance funds became simpler. The action algorithm for obtaining a profitable loan with a further refusal of the services of the IC is as follows:
- The citizen applies to the bank and gets approval upon prior request.
- The statement indicates readiness to issue the required type of insurance.
- After the loan is received, the borrower applies to the UK within five consecutive days, where he must write a waiver statement.
- The statement is made on the company’s letterhead or in accordance with the requirements established by the UK policy.
- The original application is transmitted to the insurer in the office, and the IC employee marks the acceptance on the copies of the document.
- During the period established by the rules of the company, or within 10 days, the policyholder receives an answer on his application.
- Since such measures are contrary to the interests of the company, it can delay the review process. As a result, a refund will be made after a couple of months or later.
- If there is an inaction of the insurer, delaying the process, it is better to contact an experienced lawyer who will provide advice and also initiate a pre-trial settlement.
- If there is no reaction to the client’s request, the citizen has the right to go to court.
When the borrower draws up a loan, the first desire is to get the right amount. However, after the contract with the bank and the insurer is signed, there is regret for the overpaid amount. The legal right to return the insurance premium due to the termination of the contract with the insurance company is implemented within a five-day cooling period.